Ivax Corp. v. B. Braun of America, Inc.

• Decision Date: 29 March 2002
• Docket Number: No. 01-11565.,01-11565.
• Citation: 286 F.3d 1309
• Parties: IVAX CORPORATION, Plaintiff-Appellee, v. B. BRAUN OF AMERICA, INC., B. Braun Medical, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1309

286 F.3d 1309

IVAX CORPORATION, Plaintiff-Appellee, v. B. BRAUN OF AMERICA, INC., B. Braun Medical, Inc., Defendants-Appellants.

No. 01-11565.

United States Court of Appeals, Eleventh Circuit.

March 29, 2002.

Kenneth Winston Starr, Kirkland & Ellis, Washington, DC, for Defendants-Appellants.

Eugene E. Stearns, Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson PA Miami, FL, Alan N. Salpeter, Jeffrey W. Sarles, Stephen Michael Shapiro, Mayer, Brown, Rowe & Maw, Chicago, IL, for Plaintiff-Appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT, CARNES and REAVLEY,^* Circuit Judges.

TJOFLAT, Circuit Judge:

B. Braun of America, Inc. ("BOA"), and B. Braun Medical Inc. ("BMI"), (collectively, "Braun")¹ appeal the district court's denial of a petition to compel arbitration and accompanying motion for a stay pending arbitration. We conclude that the district court erred in finding that Braun had waived its right to arbitration, and, because we hold that the dispute between Braun and the appellee, Ivax Corporation ("Ivax"), falls within the scope of the parties' arbitration clause, we reverse.

I.

A.

On May 30, 1997, Braun, a Pennsylvania corporation, agreed to purchase from Ivax, a Florida corporation with its principal place of business in Miami, all of the outstanding common stock of Ivax's subsidiary, a medical device manufacturer called McGaw, Inc. ("McGaw"). The terms of the sale were set forth in a Stock Purchase Agreement ("Agreement"), which required Braun to make an initial payment of approximately $320 million to Ivax. The Agreement also provided for the possibility of "contingency payments" to be made by Braun to Ivax based on the "adjusted combined operating income" ("ACOI")² of Braun and McGaw in the years following the stock purchase. In particular, section 2.4 of the Agreement stated that if the ACOI for a given fiscal year were $45 million or greater, then Braun must make a further payment, the amount of which depended on the ACOI. The total aggregate of the contingency payments, if any were made, was not to exceed $80 million. The Agreement also required Braun to determine the ACOI for each fiscal year and to provide Ivax with an audited statement setting forth the ACOI and "in reasonable detail the basis for the determination of such amount."³

Section 2.5 of the Agreement provided a process by which Ivax could verify Braun's ACOI determination and make any objections.⁴ First, section 2.5 required Braun to "maintain complete and accurate books and records of account[s] relating to [its ACOI determination]." These books and records were then to be made available to Ivax's accountants so that the accountant could "examine the relevant books and records... to verify that appropriate accounting and payments [had] been made." If Ivax subsequently determined that it should have received a contingency payment, section 2.5(a) stated that Ivax was to give written notice to Braun, setting forth the basis and determination for its objections. Upon receiving this notice, Braun and its accountants were entitled to examine the relevant working papers and procedures of Ivax's accountants. The parties then had thirty days from the date of Ivax's notice "to negotiate in good faith a resolution of their dispute."

If the parties could not resolve their disagreement within thirty days, however, then section 2.5(a) supplied the solution: Either Braun or Ivax "may cause such dispute to be submitted for determination" to an arbitrator, who was to be chosen from one of the "Bix Six" (now Big Five) public accounting firms.⁵ The arbitrator had thirty days from the date it was selected to "determine the disputed items using such procedures and factual investigations and determinations as the arbitrator may reasonably deem appropriate; provided, however, that the arbitrator shall be instructed to resolve such disputed items in accordance ... with that described in Section 2.4 [of the Agreement]." The decision by the arbitrator concerning the disputed items was to be "`final' and binding upon both [parties] and ... nonappealable."⁶

B.

Pursuant to the Agreement, Braun calculated the ACOI for fiscal years 1998 and 1999, and, for each year, submitted its statements to Ivax.⁷ Because Braun's determinations revealed that the ACOI for each year was less than $45 million, it made no contingency payments to Ivax. Not surprisingly, Ivax invoked its right under section 2.5 of the Agreement to have its accounting firm, Arthur Andersen ("AA"), examine Braun's books and records and the work papers of Braun's accountant, PricewaterhouseCoopers, LLP ("PwC"). Ivax therefore notified Braun on June 18, 1999, and then again on December 29, 1999, that it wanted to examine the books and records for fiscal years 1998 and 1999, respectively.

Beginning in July 1999, Braun provided AA access to its books and records as well as to PwC's work papers related to its audits.⁸ Over the next ten months, AA examined Braun's records and PwC's papers, intermittently requesting additional information and further access, which Braun often denied because it believed the requested information to be irrelevant. Finally, in May 2000, Braun refused to allow AA to continue its examination unless and until AA signed a "Confidentiality Agreement." This agreement required AA to treat as confidential all of Braun's books and records and allowed AA to disclose to Ivax only reports of its examination and any information "necessary to provide Ivax a meaningful statement of account." Notably, Ivax was not a party to the agreement. On June 8, 2000, Braun and AA executed the Confidentiality Agreement, and AA subsequently resumed its examination of Braun's books and records.⁹

On November 21, 2000, and November 29, 2000, Ivax sent Braun notices, pursuant to section 2.5(a) of the Agreement, explaining that it believed that Braun owed it contingency payments for fiscal years 1998 and 1999.¹⁰ Ivax's notices further stated that Braun had breached section 2.5 of the Agreement by, among other things, "failing to maintain complete and accurate books and records ... relating to the determination of [the ACOI]," by failing to allow Ivax to examine its books, and by "failing to calculate [the ACOI] in accordance with the Agreement." Each notice also included three pages setting forth various "deficiencies in Braun's Statement of [the ACOI]."

Shortly after receiving Ivax's notices, on December 11, 2000, Braun's accountant, PwC, began to review AA's work papers. One week later, pursuant to section 2.5(a), the parties agreed to begin good faith negotiations on December 21, 2000, which was the last day of the thirty-day negotiation period. The meeting on December 21, however, proved fruitless, the parties ending their discussion without a solution.¹¹

In the meantime, on December 20, 2000, the day before the parties' negotiation attempt, Braun sued AA in the Court of Common Pleas of Lehigh County, Pennsylvania. In a six-count complaint, Braun alleged that AA had breached the Confidentiality Agreement by improperly copying Braun's records and by providing Ivax with confidential information. Braun asserted that it brought the lawsuit in order "to protect its trade secrets and other confidential and proprietary business information" and to enjoin AA from "using or disclosing to any person" any of the information obtained from Braun. Ivax was not named as a defendant.

C.

On the same day the parties attempted to negotiate a settlement, December 21, 2000, Ivax filed the instant suit in the United States District Court for the Southern District of Florida. Alleging that Braun breached sections 2.4 and 2.5 of the Agreement, Ivax claimed that it was deprived of the contingency payments for fiscal years 1998 and 1999, and prayed for $80 million in damages. Specifically, Ivax alleged that Braun (1) "deliberately fail[ed] to maintain accurate and complete accounting books and records," (2) "inappropriately included [certain] losses in [the ACOI calculation], thereby artificially reducing [the ACOI]," (3) "intentionally implement[ed] inadequate accounting procedures," (4) "den[ied] Ivax the ability to examine all relevant books and records," and (5) "deliberately failed to calculate [the ACOI] in accordance with section 2.4(e) of the Agreement."¹²

Less than a month after the lawsuit was filed (and before filing its answer), Braun petitioned the court to compel arbitration under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4 (2000),¹³ and filed an accompanying motion for a stay pending arbitration pursuant to 9 U.S.C. § 3.¹⁴ The district court, without conducting an evidentiary hearing,¹⁵ denied Braun's motion on February 28, 2001. The court reasoned that Braun had waived arbitration "by filing suit in a Pennsylvania state court seeking to prevent disclosure by AA of the results of [its] audit," which indicates Braun's "intent to prevent Ivax from implementing the steps required under section 2.5(a) of the [Agreement] to obtain arbitration." The court further explained that Braun's "limiting and ... refusing [AA]'s access to their books and records as well as to [PwC]'s books and records is inconsistent with a good faith intent to arbitration [sic]." These acts, the court continued, prejudiced Ivax by preventing it from "present[ing] timely, reasonable, and detailed objections ... to [Braun's] ACOI statements," as well as by increasing the costs by delaying examination.

This interlocutory appeal followed.

II.

The ability of parties to agree to arbitrate their disputes is well-recognized. In 1925, Congress enacted the FAA, seeking to "reverse the longstanding judicial hostility to arbitration agreements ... and to place [these] agreements on the same footing as other contracts." Equal Employment Opportunity Comm'n v. Waffle House, Inc., ___ U.S. ___, 122 S.Ct. 754, 761, 151 L.Ed.2d 755 (2002) (citations omitted).¹⁶ Ind...